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Are Asian Chemical Companies the New Welfare Queens?

RP Siegel | Friday September 3rd, 2010 | 2 Comments

Does anyone remember candidate Ronald Reagan’s talk about the welfare queen driving around Chicago in her welfare Cadillac? You know the one; she had had ripped off $150,000 from the government, using 80 aliases, 30 addresses, a dozen social security cards, and four fictional dead husbands. Not that she ever existed, but the image stuck and helped to propel Reagan’s conservative agenda. People were outraged, as they should be, (racial innuendos notwithstanding) at the idea that someone would cheat the system that had been put in place, at taxpayers’ expense, with the laudable goal of trying to create a more equitable society. No doubt, there were people gaming the system, but not quite as dramatically as the former president would have us believe.

The world changes, but human nature stays more or less the same. Every time a large system is put with the express purpose of handing out checks, there are going to be a few bad actors who try to get more than their fair share.

The latest case involves the Kyoto-initiated UN Framework Convention on Climate Change which has developed a program called the Clean Development Mechanism or CDM which awards climate credit revenues called certified emission reduction (CER) units for companies that destroy certain particularly potent greenhouse gases that are created as a byproduct of their operations rather than releasing them into the atmosphere.

It appears that certain companies are intentionally overproducing a very potent greenhouse gas called HFC-23 or trifluoromethane solely for the purpose of destroying it in order to receive CER units. The substance is a by-product in the manufacture of HFC-22, a common refrigerant used in air conditioning systems. According to Mark Roberts, senior counsel and policy advisor at the Environmental Investigation Agency, an NGO with offices in Washington, D.C. and London, an efficient HFC-22 production operation should create no more than one percent HFC-23, although the CDM allows companies with a by-product ratio of up to three percent to qualify. Under CDM, the gases are incinerated, which produces CO2.

Watchdog group CDM Watch claims that several companies have deliberately raised their by-product ratio in order to collect more credits. The CDM executive board found that 12 or the 19 qualified companies tied their production schedules with the crediting periods. Was this gaming the system or just smart business? Mark Roberts said that this indicated that “if they weren’t getting credit, it wasn’t worth producing HCFC-22.”

The CDM Board said last week that it would postpone re-issuing more CERs to five HFC-23 projects until an investigation is completed.

“The exact amount of the environmental damage cannot be determined but the data suggests that millions of credits have been issued which do not present real emission reductions but allow companies and governments to increase their greenhouse gas emissions,” said Chaim Nissim, who is heading Noé21, an environmental NGO that has joined forces with CDM Watch. Frustrated by the inaction, the groups have submitted a proposal to revise the crediting methodology.

“The revision would ensure that the CDM projects achieve actual mitigation because it would remove the current financial incentive that causes plants to produce gas for the sole purpose of getting paid to destroy it. It also determines emission reductions in a conservative manner”, said Eva Filzmoser, Director of CDM Watch.

The group has also accused the board of inaction due to internal conflicts of interests. The plants are predominantly located in China, India and Japan. All three countries have representatives on the board.

Meanwhile, in a report just released, the Environmental Investigation Agency claims that the World Bank, which administers the credits, is obstructing attempts to reform the process. Even as the CDM Board has launched an investigation into these charges, temporarily postponing the issuance of credits, the World Bank continues to defend the program to which it is supposedly nothing more than a neutral fiscal agent.

“The World Bank can’t be the solution to climate change until they stop being the problem,” said Samuel LaBudde, Senior Atmospheric Campaigner with EIA. “Self-enrichment at the expense of climate mitigation is indefensible, as is paying chemical plants so much to destroy waste gas that they intentionally produce more.”

RP Siegel is the co-author of the eco-thriller Vapor Trails which traces a similar scandal in the oil industry.

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  • sam

    RP Siegel,

    Thanks for bringing the criminal but predictable unintended consequences when you have one constant “human nature”

    If CDM used a simple analysis tools that was developed back in the 1960s with vigor during their policy development and execution the highest Risk Prioritization Number RPN for policy Failure Mode Effect Analysis FMEA would have been the “Welfare Queens”

    Investigation needs to examine if proper policy design FMEA was conducted and to what extend learn from it and put a robust FMEA in place going forward.

    Keep-up the great work!
    Regards,
    Sam

    • http://www.triplepundit.com/author/bob-siegel/ RP Siegel

      Thanks Sam,
      I agree that FMEA is a great tool. I use it often in my consulting practice and in my own product development business. Most failures end up being either too much or too little of something. In this case it would be too much payout for the amount of net GHG reduction.
      RP

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